3 ms·

I have a few friends in London, contracting whilst working a Single Person Business (lacking the proper terminology). Super high wages £500 - £700 per day, whil

by dsaron 8y ago

I have a few friends in London, contracting whilst working a Single Person Business (lacking the proper terminology). Super high wages £500 - £700 per day, whilst having an effective tax rate or 13%. Boom.

dharma1 8y ago
The effective tax rate is closer to 30%+ once you factor in corporation tax but the rest is correct. You incorporate a limited company and take a low salary and rest in dividends. Though you'll get to higher tax brackets with that pretty quickly too, so will likely want to leave a fair share of revenue in the company (you still need to pay 20% corp tax on profit), or put it into your pension (tax relief on up to £40k/y).
- dsaron 8y ago
  Good to know, thanks on the correction. Didn't get the whole spiel from my mate but that makes sense.
dtip 8y ago
Where are you getting 13% from? If you pay yourself a salary from a ltd company there's ~14% Employers NI, 12%-2% Employee NI Depending on tax band, 20-40% Income tax depending on tax band. If you pay a dividend there's 19% Corporation tax plus 7.5%-32.5% Dividend tax. So 46%-56% tax on salary and 26.5%-51.5% tax on dividends. Nowhere near 13%, unless you're talking about 'creative accounting' by running non-business expenses through the company to effectively get them tax free.
- dsaron 8y ago
  Yeah, by all accounts reading online indicates a 45% tax rate for a sole-trader[1]. I'll have to enquire with the few mates there -- don't see a reason as to why they'd bullshit me. Frankly I have nfi however, apologies for the cop-out of an answer. 1: https://www.highspeedtraining.co.uk/hub/sole-trader-tax/ https://www.highspeedtraining.co.uk/hub/sole-trader-tax/
  - Nursie 8y ago
    > I'll have to enquire with the few mates there Sole traders are different to one-person Ltd companies. As a one-person Ltd, you used to get a lot of tax breaks, but over the last 5-6 years they seem to have been steadily eroded. Anyone paying a rate as low as 13% now is probably using a borderline-legal grey-area scheme, which is dangerous because HMRC not only hit those folks up for back taxes when they find them, but put fines on top too.
- ed_balls 8y ago
  - create a company in the Man Island - You pay yourself the minimum to have ok life style (dividend allowance + progressive tax could make it somewhere around 15% + NI). You move for a year to Singapore, so you are no longer UK tax resident. You close the company. I don't live in UK anymore and I could do something similar in my location, but I want to pay taxes and my effective rate is good.

by dsaron 8y ago

dharma1 8y ago

The effective tax rate is closer to 30%+ once you factor in corporation tax but the rest is correct. You incorporate a limited company and take a low salary and rest in dividends. Though you'll get to higher tax brackets with that pretty quickly too, so will likely want to leave a fair share of revenue in the company (you still need to pay 20% corp tax on profit), or put it into your pension (tax relief on up to £40k/y).

dsaron 8y ago
Good to know, thanks on the correction. Didn't get the whole spiel from my mate but that makes sense.

dtip 8y ago

Where are you getting 13% from? If you pay yourself a salary from a ltd company there's ~14% Employers NI, 12%-2% Employee NI Depending on tax band, 20-40% Income tax depending on tax band. If you pay a dividend there's 19% Corporation tax plus 7.5%-32.5% Dividend tax. So 46%-56% tax on salary and 26.5%-51.5% tax on dividends. Nowhere near 13%, unless you're talking about 'creative accounting' by running non-business expenses through the company to effectively get them tax free.

dsaron 8y ago
Yeah, by all accounts reading online indicates a 45% tax rate for a sole-trader[1]. I'll have to enquire with the few mates there -- don't see a reason as to why they'd bullshit me. Frankly I have nfi however, apologies for the cop-out of an answer. 1: https://www.highspeedtraining.co.uk/hub/sole-trader-tax/ https://www.highspeedtraining.co.uk/hub/sole-trader-tax/
- Nursie 8y ago
  > I'll have to enquire with the few mates there Sole traders are different to one-person Ltd companies. As a one-person Ltd, you used to get a lot of tax breaks, but over the last 5-6 years they seem to have been steadily eroded. Anyone paying a rate as low as 13% now is probably using a borderline-legal grey-area scheme, which is dangerous because HMRC not only hit those folks up for back taxes when they find them, but put fines on top too.
ed_balls 8y ago
- create a company in the Man Island - You pay yourself the minimum to have ok life style (dividend allowance + progressive tax could make it somewhere around 15% + NI). You move for a year to Singapore, so you are no longer UK tax resident. You close the company. I don't live in UK anymore and I could do something similar in my location, but I want to pay taxes and my effective rate is good.